The Iraqi economy is facing severe and pressing challenges. The decline in oil prices and the financing needs associated with the ISIS insurgency have contributed to a sharp deterioration of economic activity, public finances and the balance of payments. Macroeconomic risks remain elevated due to Iraq’s continued exposure to a volatile oil market. The government is facing the challenge of maintaining macroeconomic stability, undertaking structural reforms to improve the delivery of public services, and reconstructing core physical infrastructure in the areas liberated from the Islamic State of Iraq and Syria (ISIS).
Iraq’s GDP per capita was estimated at US$6,147 in 2014, putting Iraq in the category of upper-middle-income countries. However, economic and security conditions in Iraq worsened since mid-2014, leading to increased poverty, vulnerability, and unemployment. The GDP per capita is estimated to have contracted to nearly US$5,000 in 2015. Economic growth is estimated to have contracted by 2.4% in 2014 and is estimated to have barely expanded in 2015 (by 0.5%). Weak growth is mainly attributed to the non-oil economy which contracted by 7% in 2014 and is expected to have declined by an additional 7% in 2015. The oil price and ISIS crisis, combined with political instability, impacted private sector consumption and investment.
The severe decline in global oil prices caused oil export revenues to decline by US$40 billion. Lower oil revenues, in addition to higher humanitarian and security-related expenditures, led to a fiscal deficit of 14.5% of GDP in 2015. Such deficit could have reached 18.4% had the government not implemented a number of fiscal consolidation measures to address the situation. The current account deficit increased from 0.7%of GDP in 2014 to an estimated 6.6% in 2015. At the same time, imports remained unchanged during 2015, in part reflecting capital goods needed to expand oil-production. In light of pressing fiscal and balance of payment needs, the IMF supported Iraq through a one-off disbursement of US$1.23 billion in July 2015 under its Rapid Financing Instrument. In addition, to safeguard economic stability and basic service delivery, the World Bank provided US$1.2 billion through a Development Policy Financing operation in December 2015.
Moreover, Iraq also faces severe security challenges. As a result of the ongoing conflict, 20,035 civilians were killed in Iraq in 2014, the highest number since 2007, and a further 17,080 were killed in 2015. It is estimated that a total of 151,383 civilians were killed due to violence between 2003- 2015.
The population remains extremely vulnerable to the ongoing security problems and reduction in oil prices. Poverty levels have increased and now stand at 22.5%. The number of people living below the poverty line increased by an estimated 2.8 million by end-2014.
The displacement of 3.2 million Iraqis and some 250,000 Syrian refugees have further disrupted local economic conditions. The public distribution system provides the only safety net for the vast majority of the poor, and is currently being stretched to its limits in much of the country, and is not available in some governorates. Internally displaced persons (IDPs) are receiving cash grants of US$842 per month, but the 2.8 million new poor are left largely uncovered by any public safety net.
Last Updated: Apr 01, 2016